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Supply chain disruption

26 July 2016

Cargo underwriters Huw Davies from Acappella Syndicate and Richard Golder from Hiscox joined Tony Achinelli and Ranjit Kular from JLT Specialty’s Cargo team in a roundtable to discuss supply chain disruption, stock throughput policies and the importance of information.

What are the key elements when it comes to supply chain disruption?

Tony: Each industry will have different elements that it needs to be concerned with when it comes to supply chain management. But there are three main elements: product flow, information flow and financial flow. The product is one element, but the information that sits around this is key. The carrier needs to know all of the supply chain details, for example where it is being stored and how it needs to be stored and moved. The more information that we can give to the underwriter and the more accurate it is, then the pricing will fall into place. If you are not painting the full picture, then the underwriter will rightly take a view on how they price that risk out.

Huw: One of the main areas of concern for pharmaceuticals is the contract that the company has with the shipper. The product may only have a shelf life of 48 hours, but if the trucker doesn’t know that, it will be treated like any other cargo. Also shipping time during a working week is important as certain destinations may be closed on a weekend or in certain countries working weeks are slightly different. That is the sort of information that underwriters look at, so they can be satisfied that it is being packaged correctly and shipped in the right way.

Ranjit: The more information we get, the more we can build out the form, so we can get proper delay extensions in the policy which are not conventionally given, for example.

Why is the basis of valuation so important in this area?

Richard: Understanding the basis of valuation is important in terms of how underwriters view and manage the risk.

Tony: On the more complex accounts, the valuations can be vast in scope, from the replacement cost to the selling price. So the basis of valuation is key to how the client is indemnified in the event of a loss. These are elements that need to be understood by brokers and underwriters - where those valuations take place, where the move is, and what the potential effect could be if a claim is made.

How: With pharmaceuticals it can be big numbers – you can have a huge uplift on a drug, with, for example a replacement cost of USD 300,000, but a selling price of USD 49 million for the same quantity of drug.

Richard: On complex risks, it is crucial that the broker, the insured and the underwriters are all in harmony and understand what the risk is. We as underwriters are there to indemnify, and to also to understand those risks all the way down the line. This is because the basis of valuation for a drug might be the selling price but there might be some still in the warehouse, so the client may not have lost a sale, and it can be replaced. In another scenario, that might not be possible or practical, in which case the selling price (full value) would need to be paid. So if you can get the understanding between the market and the client, you can get a better deal for everybody.